Last updated: February 1, 2019
How Does VAT Work on Adult Pledge?
If you're not yet familiar with the basics of VAT, we first recommend checking out these helpful starter articles:
How VAT Works
VAT - Supplying Digital Services To Private Consumers
Thresholds for domestic VAT registrations (3rd column, exemption for small enterprises)
In short, VAT (Value Added Tax) is a consumption-based tax that’s assessed on the value added to goods and services -- including digital. It’s charged as a percentage of price.
Starting in 2015, the European Union changed regulations for how VAT is calculated on sales of digital services. It is now determined by the location of the consumer, not the location of the business. This also applies to independent content creators like the ones on Adult Pledge. That means that all pledges from supporters from 28 European member states should be charged with additional VAT according to rate of the respective European country.
So how is it possible you don't have to pay any VAT on our platform, but on others you still have to?
Well, from 2019 there has been significant simplification introduced targeting small business such as digital artists. That means, if your business stays below €10,000 in cross-border sales of digital goods per year throughout the EU (i.e. pledges solely from EU countries except the country where creator resides won't exceed approx. 11,500 USD/year) then you have option to choose whether you want to continue with current VAT MOSS system or start charging VAT of your home country/stop charging VAT if you are not in threshold for VAT registration in your home country.*
The threshold amount €10,000 / "per year" means sales from any 12 consecutive month period. This is a rolling yearly measurement which might need to take into consideration total sales in the current year or the preceding year.
Why other crowdfunding sites don't use this advantage for their supporters?
Well, they want to have it simple... they've set up the system where they're actually intermediary between creators and supporters. For VAT purposes it means that electronic services are supplied from creators to crowdfunding platform and from crowdfunding platform to the supporter, it means they can handle VAT instead of creators. Disadvantage is that the total turnover is then aggregated for platform instead for single creator which is far more than €10,000.
What does it mean for me and when I have to start paying VAT?
On our platform service is supplied from creator directly to supporter without any intermediary service from our side. That means that each EU creator can fully use the benefit of the threshold of €10,000 / year. Once the creator reached the threshold he will have several options.
- Creator can block further donations from EU countries;
- Creator can handle VAT compliance on his/her own;
- We can start handling issuing invoices and VAT compliance on creator's behalf as part of our VIP membership services. We begin to be intermediary.
The creator "Jimmy" is from Germany (EU creator). His total turnover on platform is € 20,000 / year. From this amount € 6,000 / year comes from EU supporters (excluding Germany) and € 14,000 from non-EU supporters and Germany. Jimmy doesn't have to charge VAT to it's customers at all.**
The creator "Susy" is from Netherlands (EU creator). Her total turnover on platform is € 40,000 / year. From this amount € 13,000 / year comes from EU supporters excluding (Netherlands) and € 27,000 from non-EU supporters. Once Susy is about to reach the amount of threshold €10,000 / year, she must inform us which of the above mentioned options of handling VAT she wants to choose.
The creator "Johny" is from US (non-EU creator). Before launching the website he must inform us which of the above mentioned options of handling VAT he wants to choose.
For more info and advice on your specific situation, we recommend you talk with a tax advisor or local tax authority.
*Please note that these simplifications do not apply to non-EU creators. It means that from 1$ pledged by any EU supporter to non-EU creator, the non-EU creator is supposed to charge VAT. This rule sounds discriminatory for non-EU creators and it's also not clear how EU wants to enforce these rules outside its borders, as for payment of the VAT is responsible non-EU creator and not EU supporter. We leave it to own discretion of the non-EU creators which offered option above they want to use.
**Please note that for purpose of this example we presume that total sales in EU wouldn't reach the threshold for domestic VAT registration (threshold in 2018 in Germany was € 17,500). Each creator may have also other sales than those on our platform about which we don't know about. Therefore each creator is responsible for domestic VAT registration obligations on their own. There are also two EU countries (Netherlands and Spain) which currently don't have any threshold for domestic VAT registration.